2009 (12) TMI 421 - AT - Central Excise

Penalty and interest- The appellant had opted for exemption under Notification No. 30/2004-Central Excise and they found that in view of the availment they were not eligible for credit of Service tax amounting to Rs. 1,3,53,337/- during the period from November, 2004 to September, 2005. On their own, the respondents reversed the credit. Show cause notice was issued and after adjudication and appellate proceedings, the matter has come before this Tribunal. Revenue is in appeal against the decision of the Commissioner (Appeals) who has held that appellant is not liable to pay interest on the Service tax credit taken by them in view of the fact that they had not utilized the credit. Held that- as credit remained unutilized, no interest payable. As assessee themselves rectified the mistake, they were not liable to penalty.

Summary

Issues:
1. Liability to pay interest on service tax credit.
2. Applicability of Rule 14 of Cenvat Credit Rules.
3. Interpretation of case law regarding credit utilization.
4. Imposition of penalty for wrong credit taken.

Analysis:

1. Liability to pay interest on service tax credit:
The case involved the question of whether the appellant was liable to pay interest on the service tax credit they had taken but not utilized. The Revenue contended that as per Rule 14 of Cenvat Credit Rules and relevant Board Circulars, the appellant was indeed liable to pay interest. However, the Commissioner (Appeals) had held that the appellant was not liable to pay interest since they had not utilized the credit. The Tribunal referred to the decision of the Hon'ble Punjab & Haryana High Court and the Hon'ble Delhi High Court, which supported the view that where credit was taken but not utilized, no interest was payable. Ultimately, the Tribunal found no merit in the Revenue's appeal and rejected it.

2. Applicability of Rule 14 of Cenvat Credit Rules:
The Revenue argued that Rule 14 of Cenvat Credit Rules clearly mandated the payment of interest on the credit taken, regardless of its utilization. However, the Tribunal noted that the case law cited did not definitively establish whether the credit in question was taken but not utilized. In light of the decisions of higher courts and the absence of clear evidence of credit utilization, the Tribunal sided with the appellant's position that no interest was payable in such circumstances.

3. Interpretation of case law regarding credit utilization:
The Tribunal analyzed the case law presented by both parties, focusing on a previous decision involving a similar issue of credit utilization. While the Revenue relied on a Tribunal decision where interest was deemed payable irrespective of credit utilization, the Tribunal distinguished that case based on the lack of clarity regarding credit usage. By referencing judgments from the Punjab & Haryana High Court and the Delhi High Court, the Tribunal concluded that in cases where credit was taken but not utilized, no interest obligation existed.

4. Imposition of penalty for wrong credit taken:
The Revenue sought to impose a penalty on the appellant for wrongly taking the credit. However, the Tribunal found no justification for penalty imposition as the appellant had voluntarily rectified the mistake upon discovering it themselves. The Tribunal considered the error to be unintentional, leading to the decision that no penalty was warranted under the circumstances. Consequently, the Tribunal disposed of the cross objections filed by the respondents, affirming the rejection of the Revenue's appeal.

In summary, the Tribunal ruled in favor of the appellant, determining that they were not liable to pay interest on the service tax credit they had taken but not utilized. The decision was supported by interpretations of relevant rules, case law, and the absence of deliberate wrongdoing by the appellant.